M/s Shyam Telelink Ltd., New Delhi V. JCIT, New Delhi

ITA 2624/DEL/2011

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3478 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 22-06-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 20-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: ALOK VASANT
• Keywords: Capital asset; Business expenditure; Deemed to accrue or arise in india; Wholly owned subsidiary; Reasonable cause; Revenue expenditure; Capital expenditure
• Section: 43B; 37(1)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH G, NEW DELHI BEFORE : SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 3831/DEL./2009 ASSESSMENT YEAR: 2005-06 A.C.I.T., CIRCLE 8(1), NEW DELHI. (APPELLANT) VS. SHYAM TELELINK LIMITED, A - 60, NARAINA INDL. AREA-1, DELHI (PAN- AACCS1709H) (RESPONDENT) ITA NO. 2624/DEL./2011 ASSESSMENT YEAR: 2007-08 SHYAM TELELINK LIMITED, (NOW KNOWN AS SISTEMA SHYAM TELESERVICES LTD.), A-60, NARAINA INDL. AREA-1, NEW DELHI. (APPELLANT) VS. A.C.I.T., CIRCLE 8(1), NEW DELHI. (RESPONDENT) ITA NO. 2991/DEL./2012 ASSESSMENT YEAR: 2008-09 SISTEMA SHYAM TELESERVICES LTD. (FORMERLY KNOWN AS SHYAM TELELINK LTD.), A-60, NARAINA INDL. AREA-1, NEW DELHI. (APPELLANT) VS. A.C.I.T., CIRCLE 8(1), NEW DELHI. (RESPONDENT) ASSESSEE BY SHRI AL O K VASANT, C.A. REVENUE BY SHRI S.S. RANA, CIT/DR DATE OF HEARING 28.11.2017 DATE OF PRONOUNCEMENT 22 .02.2018 ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 2 ORDER PER L.P. SAHU, A.M.: OUT OF ABOVE THREE APPEALS, THE FORMER ONE APPEAL IS FILED BY THE REVENUE AND THE REMAINING TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST SEPARATE ORDERS OF LD. CIT(A)-XI, NEW DELHI DATED 2 6.06.2009, 10.02.2011 AND 07.03.2012 RESPECTIVELY FOR THE ASSESSMENT YEARS 20 05-06, 2007-08 AND 2008-09 RESPECTIVELY. SINCE SOME OF THE ISSUES INVO LVED IN THESE APPEALS ARE COMMON, THEREFORE, THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. FOR THE SAKE OF CONVENIENCE, WE FIRST TAKE UP THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEA R 2005-06. THE GROUNDS RAISED IN THIS APPEAL ARE AS UNDER : 1. 'LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING TH E ADDITIONS OF RS.30,74,152/- MADE BY THE AO ON ACCOUNT OF SERVICE S REVENUE THROUGH PREPAID CARDS.' 2. 'LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING TH E ADDITIONS OF RS.72,22,000/- MADE BY THE AO ON ACCOUNT OF LEGAL A ND PROFESSIONAL FEE.' 3. 'LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING TH E ADDITIONS OF RS. 10,24,25,738/- MADE BY THE AO ON ACCOUNT OF DISCOUN TING CHARGES.' 4. 'LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING TH E ADDITIONS OF RS. 18,25,933/- MADE BY THE AO U/S 36(1) READ WITH SECT ION 2(24)(X) OF THE I.T. ACT ON ACCOUNT OF SUM RECEIVED BY THE ASSESSEE AS CONTRIBUTION FROM THE EMPLOYEES TOWARDS PROVIDENT FUND AND PAID AFTER THE DUE DATE AS PROVIDED IN THE RELEVANT ACT. ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 3 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS WHOLLY OWNED SUBSIDIARY COMPANY OF M/S. SHYAM TELECOM LIMI TED. IT WAS INCORPORATED ON 20 TH APRIL, 1995 AND CONTINUES TO PROVIDE BASIC TELEPHO NIC SERVICES IN THE STATE OF RAJASTHAN UNDER THE LICENS E OBTAINED FROM THE DOT. THE ASSESSEE COMPANY DERIVES INCOME FROM SERVICE RE VENUE INCLUDING REVENUE FROM BASIC TELEPHONE SERVICES RENDERED THRO UGH PREPAID CARDS, WHICH ARE RECOGNIZED ON THE BASIS OF ACTUAL USAGE BY THE CUSTOMERS. FROM THE DETAILS FURNISHED BY THE ASSESSEE, IT WAS OBSERVED THAT THE ASSESSEE HAD SOLD PREPAID CARDS AMOUNTING TO RS.2,86,62,316/- AND REVENUE HAS BEEN RECOGNIZED AT RS.2,55,87,164/-. IN THIS REGARD, THE ASSESSEE SUBM ITTED THAT THE DIFFERENCE IN SALE OF PREPAID CARDS AND THE REVENUE RECOGNIZED IN THE BOOKS OF ACCOUNTS SHOULD NOT BE INCLUDED IN THE INCOME OF THE CURRENT YEAR BECAUSE THE ASSESSEE COMPANY HAS PAID COMMISSION TO THE DEALERS ON THESE SALES. THE DIFFERENCE IN THE AMOUNT WAS STATED TO BE THE UN-USED VALUE OF PR EPAID CARDS AS ON THE LAST DAY OF THE ACCOUNTING YEAR. THE ASSESSEE SUBMITTED SIMILAR EXPLANATION AS IN THE LAST YEAR. FROM THE SUBMISSIONS, THE ASSESSING OFFICER WAS NOT SATISFIED AND ADDED THE AMOUNT OF RS.30,74,152/- TO THE INCOM E OF THE ASSESSEE. AGGRIEVED BY THIS ADDITION, THE ASSESSEE APPEALED B EFORE THE LD. CIT(A), WHO AFTER RELYING ON THE ORDER OF HIS PREDECESSOR FOR T HE ASSESSMENT YEARS 2004-05 AND 2003-04, ALLOWED THE APPEAL OF THE ASSESSEE. ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 4 3. THE NEXT ISSUE INVOLVED IS IN RESPECT OF DELETIO N OF ADDITION MADE ON ACCOUNT OF LEGAL AND PROFESSIONAL FEES. THE ASSESSI NG OFFICER NOTICED THAT THE ASSESSEE HAD PAID AN AMOUNT OF RS.3.07 CRORES TO VA RIOUS PARTIES AND DEBITED UNDER THE HEAD LEGAL AND PROFESSIONAL FEE. FROM THE DETAILS FURNISHED, THE FOLLOWING AMOUNTS WERE PAID FOR THE SERVICES RENDER ED AS MENTIONED BELOLW: NAME AMOUNT PURPOSE FITCH RATINGS 24.44 LACS PROFESSIONAL CHARGE FOR I NVESTMENT AND RATING. ERNST & YOUNG 11.03 LACS PROFESSIONAL FEE FOR REVI EW OF FINANCIALS OF HEXACOM J. SAGAR & ASSOCIATES 9.00 LACS LEGAL ADVICE ON I SSUE OF OCRDS BY BTVL ICRA ADVISORY SERVICE 2.75 LACS PROCESSIONAL FEE F OR EVALUATION OF FUTURE BUSINESS PLAN PRIME SECURITIES 25.00 LACS CORPORATE ADVISORY SER VICE. 4. THE ASSESSING OFFICER OBSERVED THAT THE ABOVE EX PENDITURES HAVE BEEN PAID AS CAPITAL EXPENDITURE AND DISALLOWED THE SAME . THE ASSESSEE PRODUCED BILLS IN THIS REGARD. THE LD. CIT(A) AFTER CONSIDER ING THE SUBMISSIONS OF THE ASSESSEE, UPHELD THE ACTION OF THE ASSESSING OFFICE R IN RESPECT OF SL. NO. 1, 2 & 3 AS NOTED ABOVE AND TREATED THE EXPENDITURES MENTION ED AT SL. NO. 4 & 5 AS REVENUE EXPENDITURE BY HOLDING AS UNDER : ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 5 5.3 I HAVE CAREFULLY CONSIDERED SUBMISSIONS MAD E ON BEHALF OF APPELLANT. AS ADMITTED BY THE APPELLANT ITSELF THE FIRST THREE EXPENSES WERE SPECIFICALLY INCURRED WITH REFERENCE TO THE SALE OF INVESTMENT OF THE COMPANY IN HIL. IT IS NOTED THAT THE APPELLANT COMP ANY WAS HOLDING 4,92,80,000 SHARES IN ANOTHER COMPANY HIL VALUED AT ABOUT 102 CRORES, WHICH WAS APPEARING AS OPENING BALANCE UNDER THE HE AD INVESTMENT. THIS INVESTMENT WAS SOLD DURING THE YEAR AS THERE WAS NO SUCH APPEARING IN CLOSING DATE OF THE ACCOUNTING YEAR. THE PAYMENT TO FIRST PARTY WAS MADE IN CONNECTION RATING OF THE INSTRUMENT OCRDS WHICH WERE TO BE RECEIVED IN LIEU OF TRANSFER OF SHARES. SINCE WHOLE TRANSACTION WAS TO BE STRUCTURED IN SUCH A WAY THAT THESE INSTRUMENTS BECOME LIQUID ASS ETS, RATING OF OCRD WAS NECESSARY FOR SAFETY OF THE PARTY ACQUIRING THE M AS REGARDS ITS VALUE SO THAT IT CAN BE USED OBTAINING LOANS ETC. PAYMENT TO ERNST & YOUNG WAS MADE FOR REVIEWING THE FINANCIAL STATUS OF MIL AS P ART OF DUE DILIGENCE PROCESS WHICH IS CARRIED OUT BEFORE ANY BIG INVESTM ENT. THE PAYMENT OF PARTY AT S NO 3 WAS FOR THE LEGAL ADVISORY IN RESPE CT OF OCRD'S ISSUED BY HIL. MOREOVER THAT PARTY ALSO ACTED AS TRUSTEE IN T HE SAID TRANSACTION. THEREFORE THESE WERE EXPENSES ARE SPECIFICALLY RELAT ABLE TO THE SALE OF INVESTMENT IN HIL. EVEN IF THE FIRST THREE EXPENSES ARE SAID TO BE OF CAPITAL NATURE, THEY ARE TO BE ALLOWED AS DEDUCTION WHILE C OMPUTING CAPITAL GAINS ON SALE OF INVESTMENT. AS REGARDS THE LAST TWO ITEM S THEY ARE IN THE NATURE OF PAYMENT FOR ADVISORY SERVICES. THE EXPENSES ARE O F REVENUE NATURE. THERE IS NOTHING TO SHOW THAT SOME ENDURING BENEFIT WAS DERIVED BY THE APPELLANT. MOREOVER EVEN IF SOME LONG TERM BENEFIT WAS THERE IT WAS FOR THE RUNNING OF BUSINESS OR PROFIT EARNING APPARATUS OF THE COMPANY. THE ADVANTAGE WAS NOT IN THE CAPITAL FIELD. NO ASSET WH ETHER TANGIBLE OR NON- TANGIBLE CAME INTO EXISTENCE DUE TO THESE EXPENSES. HENCE IN MY OPINION THEY CANNOT BE HELD TO BE CAPITAL EXPENSES. THEREFOR E DISALLOWANCE OF LAST TWO ITEMS IS DELETED. 5. THE THIRD ISSUE IS IN RESPECT OF DELETION OF ADD ITION OF RS.10,24,25,738/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISCOUN TING CHARGES ON SALE OF OCRDS (OPTIONAL CONVERTIBLE REDEEMABLE DEBENTURES) OF BHARTI TELEVENTURE LTD. BY HOLDING THAT IN THE NORMAL BUSINESS PRACTIC E AND GENERAL LAW, THE PAYMENT OF SALE CONSIDERATION IS THE OBLIGATION AND RESPONSIBILITY OF THE ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 6 PURCHASER AND NOT OF THE SELLER. IF ANY EXPENDITURE IS TO BE INCURRED BY THE PURCHASER FOR ARRANGING THE FUNDS FOR MAKING THE PA YMENT OF SALE CONSIDERATION, IT HAS TO BE BORNE BY THE PURCHASER AND NOT BY THE SELLER, TO BE CLAIMED BY THAT COMPANY. THE ASSESSEE SUBMITTED COP Y OF AGREEMENTS AND SUPPLEMENTARY AGREEMENTS FOR SALE OF INVESTMENTS. H E ACCORDINGLY, DISALLOWED THE DISCOUNT CLAIMED BY THE ASSESSEE AND ADDED IT INTO THE INCOME OF THE ASSESSEE TREATING THE SAME AS SHORT TERM CAP ITAL GAIN. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DELETED THE ADDITION. 6. THE LAST ISSUE INVOLVED IS REGARDING DELETING TH E ADDITION OF RS.18,25,933/- MADE BY THE ASSESSING OFFICER U/S. 3 6(1) READ WITH SECTION 2(24)(X) OF THE IT ACT ON ACCOUNT OF SUM RECEIVED B Y THE ASSESSEE AS CONTRIBUTION FROM THE EMPLOYEES TOWARDS PF AND PAID AFTER DUE DATE AS PROVIDED UNDER THE ACT. IN THE ASSESSMENT PROCEEDIN GS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE PAYMENT OF EMPL OYEES CONTRIBUTION TO PF AS UNDER : MONTH DUE DATE ACTUAL DATE EMPLOYEES OF OF PAYAMENT CONTRIBUTION PAYAMENT APRIL, 2004 15.05.2004 17.06.2004 2,316 MAY, 2004 15.06.2004 17.06.2004 547,288 15.06.2004 17.06.2004 2,505 JUNE,2004 15.07.2004 16.07.2004 623,201 15.07.2004 17.07.2004 4,800 15.07.2004 16.07.2004 1,752 ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 7 AUGUST, 2004 15.09.2004 16.09.2004 629,93 7 15.09.2004 16.09.2004 5,487 SEPT. 2004 15.10.2004 19.10.2004 6,248 OCT., 2004 15.11.2004 16.11.2004 4,800 7. THE ASSESSING OFFICER, AS PER SECTION 43B READ W ITH SECTION 36(1) AND 2(24)(X), OBSERVED THAT CONTRIBUTION TO PF CAN BE T REATED AS EXPENDITURE IN THE HANDS OF THE ASSESSEE ONLY WHEN THE EMPLOYEES CONTRIBUTION IS DEPOSITED WITHIN THE DUE DATE. HE ACCORDINGLY, MADE ADDITION OF RS.18,28,334/-. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE AND THE CIRCULARS OF PF ACT FOR RELAXATION OF 5 DAYS U/S. 14B OF THE PF ACT, RESTRICTED THE DISALLOWANCE TO RS.2401/-. 8. AGGRIEVED BY THE ORDER OF FIRST APPELLATE AUTHOR ITY, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 9. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT LEGAL AND PROFESSIONAL FEE, PAID TO ICRA ADVIS ORY SERVICES AND PRIME SECURITIES ARE CAPITAL IN NATURE. IT IS NOT NECESSA RY THE ANY TANGIBLE OR INTANGIBLE ASSET IS CREATED AFTER INCURRING EVERY E XPENDITURE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TELECOM SERVICES. THEREF ORE, THE REVENUE EXPENDITURES CLAIMED BY THE ASSESSEE ARE NOT RELATE D TO THE BUSINESS OF THE ASSESSEE AND THE ASSESSING OFFICER HAS RIGHTLY TREA TED IT AS CAPITAL EXPENDITURE. ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 8 IT WAS ALSO SUBMITTED IN RESPECT OF DISCOUNTING CHA RGES OF RS.10.24 CRORES, THAT IN THE NORMAL COURSE OF BUSINESS, THE PURCHASER ALW AYS BEARS THE EXPENDITURE. HERE, HOW THE ASSESSEE HAS BORNE THE DISCOUNTING CH ARGES ON OCIRDS IS NOT UNDERSTANDABLE. HE FURTHER SUBMITTED IN RESPECT OF DISALLOWANCE OF RS.18,25,933/- TOWARDS CONTRIBUTION TO PF THAT THE INCOME TAX ACT SHOULD BE READ IN STRICT MANNER AND IT SHOULD NOT BE CORRELAT ED TO OTHER ACTS. IN THE IT ACT, THERE IS NO FURTHER RELAXATION OF 5 DAYS AS PR OVIDED IN THE OF ACT. THEREFORE, THE ASSESSING OFFICER IS JUSTIFIED TO UP HOLD THE DELAY IN DEPOSITING THE PF. 10. ON THE OTHER HAND, THE LD. AR RELIED ON THE ORD ER OF THE LD. CIT(A) AND FILED A WRITTEN SYNOPSIS STATING AS UNDER : GROUND 1: LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING TH E ADDITIONS OF RS. 30,74,152/- MADE BY THE AO ON ACCOUNT OF SERVICES REVENUE THROU GH PREPAID CARDS. THE RESPONDENT HAD SOLD DURING FY 2004-05, PRE-PAID VOUCHERS OF VALUE RS. 2,86,62,316/- AND BASIS THE ACTUAL USAGE WITHIN THE YEAR RECOGNIZ ED REVENUE OF RS. 2,55,87,164/- (INCLUDING UNACCRUED REVENUE AS ON MA RCH 31, 2004). REFERENCE IS DRAWN TO PAGE 2 OF THE ASSESSMENT ORDER. THE DETAILS IN FY 2004-05 ARE TABULATED BELOW: PARTICULARS SOLD (RS.) USAGE (RS.) PROCESSING (RS.) INSTALLATION (RS.) SERVICE TAX (RS.) PRE- PAID VOUCHERS SOLD 2,86,62,316 2,20,98,520 35,88,407 5,81,658 23,93,731 ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 9 ADD: UNACCRUED REVENUE AS ON 31.03.04 29,46,030 LESS: UNACCRUED REVENUE AS ON 31.03.05 (52,43,982) (7,77,200) REVENUE AS PER P&L 2,55,87,164 1,98,00,568 28,11,207 5,81,658 23,93,731 THE LD. AO ADDED THE DIFFERENTIAL OF RS. 30.74,152/ - ALLEGING THAT THE SAME OUGHT TO BE RECOGNIZED AS REVENUE. CO-RELATION OF REVENUE RE COGNITION WITH COMMISSION PAYMENTS WAS TOTALLY IRRELEVANT ON THE PART OF THE LD. AO. THE RESPONDENT DRAWS YOUR ATTENTION TO THE TERMS AN D CONDITIONS OF PREPAID CARD (PLACED ON PAGE 1 OF THE PAPER BOOK) WHICH CLEARLY STATES THE TALK TIME VALIDITY, THEREBY IMPLYING THAT THE ASSESSEE HAD THE OBLIGATI ON TO RENDER SERVICES BEYOND THE YEAR IN CASES WHERE PRE-PAID VOUCHERS WERE SOLD TOW ARDS THE END OF THE YEAR. EXTRACT OF ACCOUNTING STANDARD - 9 - 'REVENUE RECOG NITION' CLEARLY STATES THAT IN TRANSACTIONS INVOLVING SERVICES, REVENUE SHOULD BE RECOGNIZED AS SERVICES ARE RENDERED (REFER PAGE 8 OF THE PAPER BOOK). THE RESPONDENT FURTHER SUBMITS THAT THIS IS A COVER ED MATTER AND PLACES BEFORE THIS BENCH THE ORDERS OF THE HON'BLE DELHI ITAT DATED JU LY 9, 2012 AND MAY 23, 2017 IN RESPONDENT'S OWN CASE IN RESPECT OF AYS 2003-04, 2004-05, 2006-07 AND 20 09-10: THE RELEVANT EXTRACTS FROM THE ORDER OF HON'BLE ITA T DATED JULY 9, 2012 IS REPRODUCED BELOW: 'THE FACTS ARE NOT DISPUTED. THE ASSESSEE'S MAIN SOURCE OF INCOME IS ON ACCOUNT OF PROVIDING SERVICES THROUGH PRE-PAID AND POST-PAID C ARDS. THE SERVICE WAS PROVIDED IN THE FORM OF TALK TIME..ASSESSEE HAD INSTALLED I NTEGRATED SOFTWARE FOR BILLING AND ACCOUNTING PURPOSE. ACCORDING TO THIS SYSTEM THE RE VENUE IN RESPECT OF SERVICES THAT HAD BEEN PROVIDED IN THE FORM OF TALK TIME TO THE SU BSCRIBERS WAS AUTOMATICALLY RECOGNISED IN THE ACCOUNTS BOTH IN RESPECT OF PREPAI D AND POSTPAID CARDS. FURTHER IT IS NOT DISPUTED THAT THE PREPAID CARDS SOLD BY THE ASS ESSEE HAD TWO PARTS, ONE FIXED AMOUNT KNOWN AS ACTIVATION CHARGE AND SECOND TALK T IME CHARGE. THE ACTIVATION CHARGE WAS ACCOUNTED FOR IMMEDIATELY WHEN THE PHONE WAS ACTIVATED. HOWEVER, THE TALK TIME CHARGES WERE RECOGNISED ON THE BASIS OF AC TUAL USE WHICH IS NORMAL PRACTICE FOLLOWED IN THE FIELD AS PER THE TERMS WITH DOT. TH E AMOUNT IN RESPECT OF WHICH THE CUSTOMER HAD NOT USED THE PREPAID CARD, WAS TREATED AS ADVANCE IN THE BALANCE SHEET AND RECOGNISED IN THE SUBSEQUENT YEAR WHEN THE TALK WAS ACTUALLY USED. ........THE FUNDAMENTAL PRINCIPLE IS THAT INCOME IS TO BE RECOGN ISED WHEN IT ACCRUES TO ASSESSEE, WHEREAS EXPENDITURE IS TO BE CHARGED THE MOMENT LIABI LITY GETS CRYSTALLIZED. THE TWO ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 10 ASPECTS CANNOT BE MINGLED AND HAVE TO BE CONSIDERED SEPARATELY. ' (REFER PARA 14 ON PAGE 6-7 OF CASE LAWS COMPILATION). '...... EVERY RECEIPT OF AMOUNT CANNOT BE TREATED A S INCOME AND ONLY THAT PART OF RECEIPT CAN BE TREATED AS INCOME WHICH CAN BE LEGALLY APPROPR IATED BY THE RECEIVER IN HIS OWN RIGHT TO THE EXCLUSION OF ITS GIVER. AS LONG AS THE PAYER HAS SOME RIGHT OVER THE AMOUNT IT HAS PAID TO THE PAYEE, IT CANNOT BE SAID THAT INC OME HAS ACCRUED TO THE PAYEE. A LEGAL RIGHT TO APPROPRIATE THE AMOUNT SHOULD HAVE ACCRUED IN FAVOUR OF THE PAYEE FOR RECOGNISING THE SUM AS INCOME. UNLESS DEBT HAS ACCRU ED IN FAVOUR OF PAYEE, IT CANNOT BE SAID THAT INCOME HAS ACCRUED TO THE PAYEE. WE HAVE EXTENSIVELY CONSIDERED THE VARIOUS DECISIONS RELIED UPON BY THE ID. COUNSEL FOR THE AS SESSEE IN ORDER TO DEMONSTRATE THAT THIS PRINCIPLE HAS BEEN APPLIED IN ALL THE DECISIONS WHICH HAS ITS ROOT IN THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF E.D. SASSON CO MPANY LTD. VS. CIT, 26 ITR 27. (REFER PARA 15 ON PAGE 7 OF CASE LAWS COMPILATION) 'IN THE PRESENT CASE, THE MAIN DISPUTE IS REGARDING REVENUE RECOGNITION RELATING LO UNUSED TALK TINE REMAINING AVAILABLE AS AT THE END O F THE YEAR. AS NOTED EARLIER, THERE IS NO DISPUTE THAT COMPANY HAD TO PROVIDE TALK TIME TO ITS SUBSCRIBER TILL THE EXPIRY OF THE PERIOD OF CARD OR TILL COMPLETE UTILISATION OF TALK TIME, WHICHEVER IS EARLIER. AS LONG AS ASSESSEE COMPANY IS UNDER OBLIGATION TO PROVIDE TALK TIME, IT CANNOT BE SAID THAT A DEBT HAS ACCRUED IN FAVOUR OF ASSESSEE COMPANY AGAINST T HE SUBSCRIBER. THE ASSESSEE COMPANY CANNOT APPROPRIATE THE CHARGES RELATING TO AVAILABLE TALK TIME TO THE EXCLUSION OF SUBSCRIBER AS LONG AS IT IS UNDER OBLIGA TION TO PROVIDE THE SAID SERVICES. THEREFORE, WE ARE OF THE OPINION THAT LD. CTT(A) IN PRINCIPLE HAS RIGHTLY ACCEPTED THE MODE OF REVENUE RECOGNITION BY ASSESSEE. '(REFER PARA 16 ON PAGE 7-8 OF CASE LAWS COMPILATION). RELIANCE IS ALSO PLACED ON THE DECISION OF THE HON' BLE DELHI TRIBUNAL IN THE CASE OF BTA CELLCOM LTD. V, ITO (COPY PLACED ON PAGES 12-19 OF CASE LAW COMPILATION ). KIND ATTENTION OF THE HON'BLE BENCH IS DRAWN TO THE SUBMISSIONS BEFORE THE LD. CIT(A) ON THE MATTER (ON PAGES 154-159 OF THE PAPER BOOK)AND THE DISPOSAL IN FAVOUR OF THE ASSESSEE BY THE LD. CIT(A) IN HIS APP ELLATE ORDER ON PAGES 1 AND 2. GROUND 2: LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING TH E ADDITIONS OF RS. 72,22,000 MADE BY THE AO ON ACCOUNT OF LEGAL AND PROFESSIONAL FEE. LEGAL AND PROFESSIONAL FEES AMOUNTING RS. 72,22,000 WAS CONSIDERED AS CAPITAL IN NATURE AND WAS DISALLOWED BY LD. AO DURING ASSESSME NT PROCEEDINGS. DETAILS OF THE EXPENSES ARE AS UNDER: SL. NO. NAME AMOUNT (RS.) PURPOSE 1 FITCH RATINGS 24.22 LACS PROFESSIONAL CHARGE FOR INVESTMENT STRUCTURING AND RATING ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 11 2 ERNST & YOUNG 11. 03 LACS PROFESSIONAL FEE FOR REVIEW OF FINANCIALS OF HEXACOM 3 J. SAGAR & ASSOCIATES 9.00 LACS LEGAL ADVICE ON ISSUE OF OCRDS BY BTVL 4 ICRA ADVISORY SERVICES 2.75 LACS PROFESSIONAL FEE FOR EVALUATION OF FUTURE BUSINESS PLAN 5 PRIME SECURITIES 25.0 LACS CORPORATE ADVISORY SERVICES COPIES OF INVOICES ARE PLACED ON PAGES 9-14 OF THE PAPER BOOK. THE LD. CIT(A) HELD THE FIRST THREE EXPENSES AGGREG ATING RS. 44.25 LACS AS CAPITAL EXPENDITURE WHICH OUGHT TO BE ALLOWED AS A DEDUCTIO N FOR COMPUTATION OF CAPITAL GAIN ARISING FROM THE SALE OF SHARES OF HEXACOM IND IA LTD. DURING THE SUBJECT ASSESSMENT YEAR. BALANCE OF RS. 27.75 LACS WAS ALLO WED AS REVENUE EXPENSE INCURRED FOR RUNNING OF THE BUSINESS DURING THE NORMAL COURS E. THE RESPONDENT PLACES RELIANCE ON THE LD. CIT(A) OR DER. RELEVANT EXTRACT IS QUOTED BELOW: 'I HAVE CAREFULLY CONSIDERED SUBMISSIONS MADE ON BEHALF OF APPELLANT. AS ADMITTED BY THE APPELLANT ITSELF THE FIRST THREE EXPENSES WERE SPECIFICALLY INCURRED WITH REFERENCE TO THE SALE OF INVESTMENT OF THE COMPANY IN HIL. IT IS NOTED THAT THE APPELLANT COMPANY WAS HOLDING 4,92,80,000 SHARES IN ANOTHER COMPANY H IL VALUED AT ABOUT 102 CRORES. WHICH WAS APPEARING AS OPENING BALANCE UNDER THE HEAD INVESTM ENT. THIS INVESTMENT WAS SOLD DURING THE YEAR AS THERE WAS NO SUCH INVES TMENT APPEARING IN CLOSING DATE OF THE ACCOUNTING YEAR. THE PAYMENT TO FIRST PARTY WAS MADE IN CONNECTION RATING OF THE INSTRUMENT OCRDS WHICH WERE TO BE RECEIVED IN LIEU O F TRANSFER OF SHARES. SINCE WHOLE TRANSACTION WAS TO BE STRUCTURED IN SUCH A WAY THAT THESE INSTRUMENTS BECOME LIQUID ASSETS, RATING OF OCRD WAS NECESSARY FOR SAFETY OF THE PARTY ACQUIRING THEM AS REGARDS ITS VALUE SO THAT IT CAN BE USED OBTAINING LOANS ETC. PAYMENT TO ERNST & YOUNG WAS MADE FOR REVIEWING THE FINANCIAL STATUS OF HIL AS P ART OF DUE DILIGENCE PROCESS WHICH IS CARRIED OUT BEFORE ANY BIG INVESTMENT. THE PAYMENT OF PARTY AT S NO 3 WAS FOR THE LEGAL ADVISORY IN RESPECT OF OCRD'S ISSUED BY HIL. MOREOV ER THAT PARTY ALSO ACTED AS TRUSTEE IN THE SAID TRANSACTION. THEREFORE THESE WERE EXPEN SES ARE SPECIFICALLY RELATABLE TO THE SALE OF INVESTMENT OF HIL. EVEN IF THE FIRST THREE EXPENSES ARE SAID TO BE OF CAPITAL NATURE, THEY ARE TO BE ALLOWED AS DEDUCTION WHILE CO MPUTING CAPITAL GAINS ON SALE OF INVESTMENT. AS REGARDS THE LAST TWO ITEMS THEY ARE IN THE NATU RE OF PAYMENT OF ADVISORY SERVICES. THE EXPENSES ARE OF REVENUE NATURE. THERE IS NOTHING TO SHOW THAT SOME ENDURING BENEFIT WAS DERIVED BY THE APPELLANT. MOREO VER EVEN IF SOME LONG TERM BENEFIT WAS THERE IT WAS FOR THE RUNNING OF BUSINESS OR PROFIT EARNING APPARATUS OF THE COMPANY. THE ADVANTAGE WAS NOT IN THE CAPITAL FIELD . NO ASSET WHETHER TANGIBLE OR NON-TANGIBLE CAME INTO EXISTENCE DUE TO THESE EXPENS ES. HENCE IN MY OPINION THEY ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 12 CANNOT BE HELD TO BE CAPITAL EXPENSES. THEREFORE DISALLOWANCE OF LAST TWO ITEMS DELETED. ' (PG. 4 OF LD. CIT(A) ORDER). KIND ATTENTION OF THE HON'BLE BENCH IS ALSO DRAWN T O THE SUBMISSIONS BEFORE THE LD. CIT(A) ON THE MATTER (ON PAGES 161-165 OF THE PAPER BOOK) AND RELIANCE IS PLACED ON CASE LAWS PLACED IN SL. NO. 3-6 OF THE CASE LAWS COMPILATION. GROUND 3: LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING TH E ADDITIONS OF RS. 102,425,738 MADE BY THE AO ON ACCOUNT OF DISCOUNTIN G CHARGES. IN SUBSTANCE, THE FACTS WERE AS UNDER: DURING THE EARLIER PREVIOUS YEAR, THE RESPONDENT HA D INVESTED RS. 1,020.88 MILLION FOR 27.5% STAKE IN HEXACOM INDIA LTD. ('HIL'). AS P ER ACQUISITION AND SHARE SWAP AGREEMENT DATED APRIL 5, 2004, AS AMENDED BY THE SU PPLEMENTARY AGREEMENT DATED APRIL 12. 2004, THE RESPONDENT SOLD ITS HOLDING IN HIL TO BHARTI TELEVENTURES LTD. FOR A CONSIDERATION OF RS. 1,751.87 MILLION IN THE FORM OF 17,519 OPTIONALLY CONVERTIBLE REDEEMABLE DEBENTURES - (OCRD) AT THE RATE OF RS. 0 .1 MILLION PER OCRD. THESE OCRDS WERE REDEEMABLE AT THE END OF ONE YEAR FROM M AY 14, 2004. THIS TRANSACTION RESULTED IN A SHORT-TERM CAPITAL GAIN OF RS. 730.99 MILLION. WITH A VIEW TO LIQUIDATE THE OCRDS EARLY CONSIDERIN G THE BUSINESS REQUIREMENTS AND THE NEED TO RETIRE ITS EXISTING LOANS, THE RESPONDE NT ASSESSEE TRANSFERRED ITS BENEFICIAL INTEREST, RIGHT AND TITLE IN THESE OCRD S TO SHYAM CELLULAR INFRASTRUCTURE PROJECTS LTD ('SCIPL') FOR A CONSIDERATION OF RS. 1,649.42 MILLION THEREBY INCURRING A SHORT-TERM CAPITAL LOSS OF RS. 102.45 MILLION. THE NET SHORT CAPITAL GAIN FROM THE TWO TRANSACTION S WAS RS. 628.54 MILLION WHICH WAS OFFERED TO TAX AND ALSO DISCLOSED AS EXCEPTIONA L ITEM IN THE PROFIT AND LOSS ACCOUNT. THE RESPONDENT PLACES RELIANCE ON THE LD. CIT(A) OR DER. RELEVANT EXTRACT IS QUOTED BELOW: 'THE ASSESSING OFFICER HAS REFERRED TO UND INTERPRE TED ONLY THE AGREEMENT DATED 15/9/04 WHICH IS NOT RELEVANT FOR THE ISSUE. SINCE THE APPELLANT COMPANY HAD RECEIVED CASH OF RS. 164.94 CRORES ON TRANSFER OF TITLE ON O CRDS, I HE FACE VALUE OF WHICH WAS RS. 175.18 CRORES, THE DIFFERENCE WAS SHORT TERM CAPITA L LOSS ON THE SAID TRANSACTION WHICH HAS TO BE SET OFF AGAINST CAPITAL GAIN ARISING FROM THE TRANSACTION OF SALE OF SHARE OF H1L. I ALSO AGREE WITH THE AR THAT EVEN IF THE WHOL E ARRANGEMENT IS SEEN AS THE SINGLE TRANSACTION THEN THE RESULT WOULD BE SAME BECAUSE THE APPELLANT RECEIVED THE CASH OF RS. 164.94 CRORES FOR SALE OF SHARES IN HIL MAY BE T HROUGH THE ROUTE OF TITLE OF OCRDS WHICH WAS TRANSFERRED BEFORE THEY WERE ISSUED. THERE FORE THE DISALLOWANCE OF DISCOUNTING CHARGES OF RS. 10. 24 CRORES WAS NOT JU STIFIED AND HENCE DELETED. ' ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 13 KIND ATTENTION OF THE HON'BLE BENCH IS ALSO DRAWN T O THE SUBMISSIONS BEFORE THE LD. CIT(A) ON THE MATTER (ON PAGES 166-170 OF THE PAPER BOOK) AND RELIANCE IS PLACED ON CASE LAWS PLACED IN SL. NO. 7-8 OF THE CASE LAWS COMPILATION. GROUND 4: LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING TH E ADDITIONS OF RS. 18,25,933/- MADE BY THE AO U/S 36(1) READ WITH SECT ION 2(24)(X) OF THE I.T. ACT ON ACCOUNT OF SUM RECEIVED BY THE ASSESSEE AS CONTRIBUTION FROM THE EMPLOYEES TOWARDS PROVIDENT FUND AND PAID AFTER THE DUE DATE AS PROVIDED IN THE RELEVANT ACT. REFERENCE IS INVITED TO THE ANNEXURE - II PERTAININ G TO CLAUSE 16(B) OF THE TAX AUDIT REPORT (REFER PAGE 122 OF PAPER BOOK) WHICH CLEARLY SETS OUT THAT ALL THE DEPOSITS TO GOVERNMENT TREASURY EXCEPT FOR THE EMPLOYEES' CO NTRIBUTION FOR THE MONTH OF APRIL AMOUNTING RS. 2,316 AND RS. 85 WERE MADE WITH IN THE DUE DATES AS MENTIONED IN THE PF ACT. THE SAID AMOUNTS WERE SUO-MOTO DISAL LOWED BY THE ASSESSEE (REFER PAGE 112 OF THE PAPER BOOK). DETAILS OF EMPLOYEE CONTRIBUTION TO PROVIDENT FUND ALLOWED IN CIT(A) ORDER ARE AS BELOW: MONTH EPF DEDUCTED (RS.) EPF DEPOSITED (RS.) DUE DATE OF PAYMENT ACTUAL DATE OF PAYMENT MAY 5,47,288 5,47,288 20.06.2004 17.06.2004 MAY 2,505 2,505 20.06.2004 17.06.2004 JUNE 6,23,201 6,23,201 20.07.2004 16.07.2004 JUNE 4,800 4,800 20.07.2004 17.07.2004 JUNE 1,752 1,752 20.07.2004 16.07.2004 AUGUST 6,29,937 6,29,937 20.09.2004 16.09.2004 AUGUST 5,487 5,487 20.09.2004 15.09.2004 SEPTEMBER 6,248 6,248 20.10.2004 19.10.2004 OCTOBER 4,800 4,800 20.11.2004 16.11.2004 TOTAL 18,25,918 18,25,918 ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 14 FOR DETERMINING 'DUE DATE' FOR PAYMENT OF PROVIDENT FUND CONTRIBUTIONS, CLAUSE (1) OF PARAGRAPH 38 OF EMPLOYEES' PROVIDENT FUND SCHEME , 1952 IS RELEVANT. IT READS AS FOLLOWS:- 'MODE OF PAYMENT OF CONTRIBUTIONS (1) THE EMPLOYER SHALL, BEFORE PAYING THE MEMBER HIS WAGES IN RESPECT OF ANY PERIOD OR PART OF PERIOD FOR WHICH CONTRIBUTIONS ARE PAYABLE, DEDUCT THE EMPLOYEE'S CONTRIBUTION FROM HIS WAGES WHICH TOGETHER WITH HIS OWN CONTRIBUT ION AS WELL AS AN ADMINISTRATIVE CHARGE OF SUCH PERCENTAGE [OF THE PAY (BASIC WAGES, CLEARNESS ALLOWANCE, RETAINING ALLOWANCE, IF ANY, AND CASH VALUE OF FOOD CONCESSIO NS ADMISSIBLE THEREON) FOR THE TIME BEING PAYABLE TO THE EMPLOYEES OTHER THAN EXCLUDED EM PLOYEE AND IN RESPECT OF WHICH PROVIDENT FUND CONTRIBUTION PAYABLE, AS THE CENTRAL GOVERNMENT MAY FIX. HE SHALL WITHIN FIFTEEN DAYS OF THE CLOSE OF EVERY MONTH PAY THE SAME TO THE FUND BY SEPARATE BANK DRAFTS OR CHEQUES ON ACCOUNT OF CONTRIBUTIONS A ND ADMINISTRATIVE CHARGE]. ' A FURTHER GRACE PERIOD OF 5 DAYS HAS BEEN GIVEN BY THE CPFP VIDE CIRCULAR NO. E- 128(I)60-III DT. 19 TH MARCH. 1964, AS MODIFIED BY CIRCULAR NO. E- 11/128/14B/AMENDMENT/73 DT. 24TH OCT., 1973. EXPLANATION TO SECTION 36(L)(VA) OF THE ACT STATES: 'FOR THE PURPOSES OF THIS CLAUSE, 'DUE DATE' MEANS THE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EMPLOYER TO CREDIT AN EMPLOYEE 'S CO NTRIBUTION TO THE EMPLOYEE 'S ACCOUNT IN THE RELEVANT FUND UNDER ANY ACT, RULE, O RDER OR NOTIFICATION ISSUED THEREUNDER OR UNDER ANY STANDING ORDER, AWARD, CONT RACT OF SERVICE OR OTHERWISE. ' AS MENTIONED IN THE EXPLANATION ABOVE, DUE DATE IS ALSO TO BE CONSTRUED HAVING REGARD TO ANY ORDER/ NOTIFICATION ISSUED UNDER THE RELEVANT ACT AS WELL. HENCE, THE CONTENTION OF LD. AO THAT DUE DATE WOULD NOT INCLUD E GRACE PERIOD IS WITHOUT BASIS. IN SUHAG TRADERS (P) LTD. VS. INCOME TAX OFFICER, ITAT DELHI, F' BENCH, (2008) 114 TTJ (DEL) 116: (2008) 3 DTK 14, THE LD. CIT(A) HAD OBSERVED AS UNDER: '2.2 I HAVE CONSIDERED THE SUBMISSIONS, THE FACTS OF THE CASE AND THE JUDICIAL PRECEDENTS RELIED UPON. FROM THE CHART SHOWING THE DATE OF DEP OSIT AND THE DATE OF CLEARING OF CHEQUES IT IS SEEN THAT INDEED MOST OF THE CHEQUES WERE TENDERED WITHIN THE GRACE PERIOD PERMITTED. MANY OF THEM WERE TENDERED BEFORE THE DUE DATE ITSELF. THE 'DUE DATE' HAS BEEN DEFINED AS THE DATE BY WHICH AN ASSES SEE, IS REQUIRED AS AN EMPLOYER TO CREDIT AN EMPLOYEE'S CONTRIBUTION TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND UNDER ANY ACT, RULE, ORDER OR NOTIFICATION ISSUED THEREUN DER OR UNDER ANY STANDING ORDER, AWARD, CONTRACT OF SERVICE OR OTHERWISE. FROM A COM BINED READING OF S. 43B(B) AND SECOND PROVISO TO THIS SECTION, IT IS QUITE CLEAR T HAT THE CONTRIBUTIONS TO ANY PROVIDENT FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES ARE ALLOWABLE ONLY IF THE PAYMENTS ARE MADE WITHIN THE DUE DATE UNDER THE ACT OR THE R ULE GOVERNING SUCH CONTRIBUTIONS. IN THE CASE OF PF DEPOSITS, THE PF ACT PROVIDES FOR PAYMENT BY 15TH OF THE FOLLOWING MONTH. A FURTHER GRACE PERIOD OF 5 DAYS HAS BEEN GIV EN BY THE CPFP VIDE CIRCULAR NO. E- 128(I) 60-111 DT. 19TH MARCH, 1964, AS MODIFIED BY CIRCULAR NO. E- II/128/14B/AMENDMENT/73 DT. 24TH OCT., 1973. THEREF ORE, IF AN EMPLOYER DEPOSITS THE ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 15 PF CONTRIBUTION BY 20TH OF THE FOLLOWING MONTH, THEN THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION ON THAT ACCOUNT. THEREFORE, IN MY OPINION , PAYMENTS TENDERED WITHIN THE EXTENDED PERIOD OF FIVE DAYS IN RESPECT OF PF WOULD HE CONSIDERED AS HAVING BEEN PAID WITHIN TIME. ' THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODAVERI (MANNAR) SAHAKARI SAKHAR KHARKHANA LTD. [2008] 298 ITR 149 (BOM.) HAS CLEARLY HELD IN FAVOUR OF ALLOWING THE BENEFIT OF GRACE PERIOD. REFERENCE IS ALSO DRAWN TO THE DECISION OF THE JURISDICTIONAL DELHI HIGH COURT IN CASE OF AIMIL LTD. (188 TAXMAN 265) WHERE-IN DEPOSITS BEFORE DUE DATE OF FILING OF TAX RETURN WAS ALSO ACCEPTED FOR ALLOWANCE PURPOSES. KIND ATTENTION OF THE HON'BLE BENCH IS ALSO DRAWN T O THE SUBMISSIONS BEFORE THE LD. CIT(A) ON THE MATTER (ON PAGES 159-160 OF THE PAPER BOOK). THE RESPONDENT FURTHER SUBMITS THAT THIS IS A COVERED MATTER AND THE HON'BLE DELHI ITAT HELD IN FAVOUR IN RESPONDENT'S OWN CASE IN RESPECT OF AYS 2003-04, 2004-05 AND 2006-07 (PL EASE REFER PAGE 10 OF CASE LAW COMPILATION). 11. AFTER HEARING BOTH THE SIDES AND PERUSING THE M ATERIALS AVAILABLE ON RECORD AND ORDERS OF AUTHORITIES BELOW AND SUBMISSI ONS OF THE ASSESSEE, WE FIND THAT GROUND NO. 1 IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE ORDER OF COORDINATE BENCH OF TRIBUNA L DATED 23.05.2017 IN THE CASE OF ASSESSEE ITSELF (ITA NO. 3926/DEL./2014) FO R A.Y. 2009-10) WHEREBY THE TRIBUNAL OBSERVED AS UNDER : 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS PLACED BEFORE US. THE ASSESSEES SOURCE OF INCOME IS FROM THE SALE OF PRE -PAID AND POST-PAID CARDS/ CONNECTIONS AND THE METHOD FOLLOWED FOR RECOGNITION OF THE SAME IS ACCRUAL AND AT PAR WITH THAT OF THE TELECOM INDUSTRY IN THIS YEAR AS WELL. IN THE EARLIER ASSESSMENT YEARS I.E. 2004-05 AND 2006-07, IN ASSESSEES OWN C ASE THE ITAT HELD THE ASSESSEE COMPANY CANNOT APPROPRIATE THE CHARGES RELATING TO AVAILABLE TALK TIME TO THE EXCLUSION OF SUBSCRIBER AS LONG AS IT IS UNDER OBLI GATION TO PROVIDE THE SAID SERVICES. THEREFORE, THE ITAT WAS OF THE OPINION THAT CIT(A) IN PRINCIPLE HAS RIGHTLY ACCEPTED THE MODE OF REVENUE RECOGNITION BY THE ASSESSEE IN THOSE ASSESSMENT YEAR. THE RELEVANT EXTRACTS FROM THE ORDER OF TRIBUNAL FOR A. Y. 2004-05 & 2006-07 IS REPRODUCED BELOW: PARA 14...ASSESSEE HAD INSTALLED INTEGRATED SOF TWARE FOR BILLING AND ACCOUNTING PURPOSE. ACCORDING TO THIS SYSTEM THE RE VENUE IN RESPECT OF SERVICES THAT HAD BEEN PROVIDED IN THE FORM OF TALK TIME TO THE SUBSCRIBERS ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 16 WAS AUTOMATICALLY RECOGNISED IN THE ACCOUNTS BOTH IN RESPECT OF PREPAID AND POSTPAID CARDS. FURTHER IT IS NOT DISPUTED THAT THE PREPAID CARDS SOLD BY THE ASSESSEE HAD TWO PARTS, ONE FIXED AMOUNT KNOWN AS A CTIVATION CHARGE AND SECOND TALK TIME CHARGE. THE ACTIVATION CHARGE WAS ACCOUNTED FOR IMMEDIATELY WHEN THE PHONE WAS ACTIVATED. HOWEVER, THE TALK TIME CHARGES WERE RECOGNISED ON THE BASIS OF ACTUAL USE WHICH IS NORMAL PRACTICE FOLLOWED IN THE FIELD AS PER THE TERMS WITH DOT. THE AMOUNT IN RESPECT OF WHICH THE CUSTOMER HAD NOT USED THE PREPAID CARD, WAS TREATED AS ADVANCE IN THE BALANCE SHEET AND RECOGNISED IN THE SUBSEQUENT YEAR WHEN THE TALK WAS ACTUALLY USED. THE FUNDAMENTAL PRINCIPLE IS THAT INCOME IS TO BE RE COGNISED WHEN IT ACCRUES TO ASSESSEE, WHEREAS EXPENDITURE IS TO BE CHARGED THE MOMENT LIABILITY GETS CRYSTALLIZED. THE TWO ASPECTS CANNOT BE MINGLED AND HAVE TO BE CONSIDERED SEPARATELY. PARA 15 EVERY RECEIPT OF AMOUNT CANNOT BE TREATED AS INCOME AND ON LY THAT PART OF RECEIPT CAN BE TREATED AS INCOME WHICH CAN BE LEGALLY APPROPRIATED BY THE RECEIVER IN HIS OWN RIGHT TO THE EXCLUSION O F ITS GIVER. AS LONG AS THE PAYER HAS SOME RIGHT OVER THE AMOUNT IT HAS PAID TO THE P AYEE, IT CANNOT BE SAID THAT INCOME HAS ACCRUED TO THE PAYEE. A LEGAL RIGHT TO A PPROPRIATE THE AMOUNT SHOULD HAVE ACCRUED IN FAVOUR OF THE PAYEE FOR RECO GNISING THE SUM AS INCOME. UNLESS DEBT HAS ACCRUED IN FAVOUR OF PAYEE, IT CANNO T BE SAID THAT INCOME HAS ACCRUED TO THE PAYEE. WE HAVE EXTENSIVELY CONSIDERE D THE VARIOUS DECISIONS RELIED UPON BY THE ID. COUNSEL FOR THE ASSESSEE IN ORDER TO DEMONSTRATE THAT THIS PRINCIPLE HAS BEEN APPLIED IN ALL THE DECISIONS WHIC H HAS ITS ROOT IN THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF E.D. SASSON COMPANY LTD. VS. CIT, 26 ITR 27. PARA 16. IN THE PRESENT CASE, THE MAIN DISPUTE IS REGARDING REVENUE RECOGNITION RELATING TO UNUSED TALK TINE REMAINING AVAILABLE AS AT THE END OF THE YEAR. AS NOTED EARLIER, THERE IS NO DISPUTE THA T COMPANY HAD TO PROVIDE TALK TIME TO ITS SUBSCRIBER TILL THE EXPIRY OF THE P ERIOD OF CARD OR TILL COMPLETE UTILISATION OF TALK TIME, WHICHEVER IS EARLIER. AS LONG AS ASSESSEE COMPANY IS UNDER OBLIGATION TO PROVIDE TALK TIME, IT CANNOT BE S AID THAT A DEBT HAS ACCRUED IN FAVOUR OF ASSESSEE COMPANY AGAINST THE S UBSCRIBER. THE ASSESSEE COMPANY CANNOT APPROPRIATE THE CHARGES RELATING TO AVAILABLE TALK TIME TO THE EXCLUSION OF SUBSCRIBER AS LONG AS IT IS UNDER O BLIGATION TO PROVIDE THE SAID SERVICES. THEREFORE, WE ARE OF THE OPINION TH AT LEARNED CIT(A) IN PRINCIPLE HAS RIGHTLY ACCEPTED THE MODE OF REVENUE RECOGNITION BY THE ASSESSEE. .. IN THE PRESENT APPEAL ALSO THE SAME ISSUE IS CONTES TED BY THE REVENUE. AS THE CIT(A) HAS FOLLOWED THE EARLIER YEARS ORDER. THERE IS NO NEED TO INTERFERE WITH THE FINDINGS OF THE CIT(A) IN THIS YEAR AS WELL. THUS, THE CIT(A)S ORDER IS UPHELD. ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 17 12. IN RESPECT OF GROUND NO. 2 REGARDING LEGAL AND PROFESSIONAL FEE, WE OBSERVE FROM THE ORDER OF LD. CIT(A) THAT THE PAYME NT MADE TO ICRA ADVISORY SERVICES AND PRIME SECURITIES, HAS BEEN TREATED BY THE LD. CIT(A) AS REVENUE EXPENDITURE. IT IS OBSERVED FROM THE BILLS SUBMITTE D BY THE ASSESSEE OF PRIME SECURITIES OF RS.25,00,000/- PLACED AT PB-13, THAT IT HAS BEEN PAID FOR CORPORATE ADVISORY SERVICES TAKEN FROM PRIME SECURI TIES LTD. THE ASSESSEE HAS NOT PRODUCED ANY DOCUMENTARY EVIDENCES AS TO WHAT T YPE OF SERVICES WERE RENDERED BY PRIME SERVICES WHETHER IT IS RELATABL E TO THE BUSINESS OR NOT. NO ANY AGREEMENTS OR SCOPE OF WORKS HAS BEEN FURNISHED . THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED TO TREAT THIS EXPEN DITURE FOR THE PURPOSE OTHER THAN CURRENT YEARS BUSINESS. THEREFORE, THIS EXPEN DITURE WAS RIGHTLY HELD BY THE AO AS CAPITAL EXPENDITURE. THE LD. CIT(A) HAS D ELETED THE ADDITION WITHOUT ESTABLISHING IT AS REVENUE IN NATURE RELATING TO CU RRENT YEARS BUSINESS OF ASSESSEE. THEREFORE, THIS GROUND OF APPEAL DESERVES TO BE ALLOWED. 13. IN RESPECT OF GROUND NO. 3, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. THE FINDINGS OF THE LD. CIT(A) ARE AS UNDER : 7.3. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE ON BEHALF OF APPELLANT. I HAVE ALSO SEEN RELEVANT CLAUSES OF VARIOUS AGREEMEN TS REFERRED BY THE APPELLANT AS WELL AS AUDITED ACCOUNTS INCLUDING THE NOTE 1(B) OF SCHEDULE 18. THE SAID NOTE WAS ONLY PARTLY REPRODUCED BOTH IN THE ASSESSMENT ORDER AS WELL AS IN THE APPELLANT'S SUBMISSION. THE FULL NOTE IS REPRODUCED AS BELOW WHICH CLARIFIES CERTAIN MISS ING LINKS. ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 18 'DURING THE PREVIOUS YEAR, THE COMPANY INVESTED RS 1020.88 MILLION FOR 27.5% STAKE IN HIL AS PER ACQUISITION AND SHARE SWA P AGREEMENT DATED APRIL 5, 2004 AS AMENDED BY THE SUPPLEMENTARY AGREEMENT D ATED APRIL 12,2004, THE COMPANY SOLD ITS HOLDING IN HIL TO BHARTI TELEV ENTURES LTD FOR A CONSIDERATION OF RS 1751.87 MILLION IN THE FORM OF 17,519 OPTIONALLY CONVERTIBLE REDEEMABLE DEBENTURES (OCRD) AT THE RAT E OF RS 0.1 MILLION PER OCRD. THESE OCRDS WERE REPAYABLE AT THE END OF ONE YEAR FROM MAY 14, 2004. HOWEVER BEFORE THE TRANSFER OF OCRD IN ITS NA ME, THE COMPANY TRANSFERRED ITS BENEFICIAL INTEREST, RIGHT AND TITL E IN THESE OCRDS TO SHYAM CELLULAR INFRASTRUCTURE PROJECTS LTD (SCIPL) FOR A CONSIDERATION OF RS 1,649.42 MILLION NET OF DISCOUNTING CHARGES OF RS 102.42 MIL LION. ON JUNE 3, 2004, THE COMPANY ENTERED INTO A LOAN AG REEMENT WITH RAJASTHAN TELECOM LTD (RTL) FOR LOAN OF RS 3,735 MILLION AGAI NST SECOND CHARGE ON FIXED ASSETS AND MOVABLE PROPERTIES OF THE COMPANY INCLUD ING ITS MOVABLE PLANT AND MACHINERY, MACHINERY SPARES, TOOLS AND ACCESSOR IES AND OTHER MOVABLES BOTH PRESENT AND FUTURE (EXCEPT BOOK DEBTS) WHETHER INSTALLED OR NOT AND WHETHER LYING LOOSE OR STORED IN FROM TIME TO TIME DURING THE CONTINUANCE OF THE SECURITY AND PREMISES, GODOWNS SITUATED IN RAJA STHAN. OF THE LOAN OF RS 3,735 MILLION RECEIVED FROM RTL O N JUNE 4, 2004 THE COMPANY DISBURSED RS 981.94 MILLION AND RS 1,785.20 MILLION TO SHYAM TELECOM LTD AND SCIPL RESPECTIVELY. THE BALANCE AMO UNT OF RS 1,649.42 MILLION WAS RETAINED BY THE COMPANY FOR THE CONSIDE RATION RECEIVABLE FROM SCIPL FOR TRANSFER OF BENEFICIAL RIGHTS, INTEREST A ND TITLE IN OCRD AND RECORDED IT AS LOAN GIVEN TO SCIPL. SUBSEQUENTLY PURSUANT TO THE AGREEMENTS DATED SEPT 15, 2004 THE COMPANY HAS SETTLED THE LOAN AMOU NT BY SETTING OFF THE LOAN RECEIVABLE FROM STL AND SCIPL WITH THE LOAN PA YABLE TO RTL. AS PER THE AGREEMENT, SECURITY PROVIDED TO RTL TO SECURE THE C OMPANY'S BORROWINGS OF RS 3,735 MILLION IS EXTENDED TO SECURE THE BORROWIN GS OF SCIPL BY THE WAY OF SECOND CHARGE WITH THE SAME TERMS AND CONDITION AND THE LOAN TAKEN BY THE COMPANY STAND REPAID IN FULL. THE PROFIT ON SALE OF THE TRANSACTION OF RS 628.54 MILLION, NET OF DISCOUNTING CHARGES OF RS.102.42 MILLION HAS BEEN DISCLOSED AS EXCEPTIONAL ITEM IN THE P&L ACCOUNT.' IT IS NOTED WHILE REJECTING THE APPELLANT'S SUBMISS IONS ON THE ISSUE THE AO HAS ONLY REFERRED TO THE AGREEMENT DATED 15/9/04 AMONGST FOU R PARTIES. THE ENTIRE CONCLUSION ABOUT THE LIABILITY FOR PAYMENT OF DISCO UNTING CHARGES WAS DERIVED ON THE BASIS OF THAT AGREEMENT. THE AO HAS SIMPLY NOTED TH AT THE PAYMENT OF SALE CONSIDERATION WAS THE OBLIGATION OF PURCHASER OF AN Y ASSET AND HENCE ANY EXPENDITURE FOR ARRANGING THE FUNDS WAS ALSO TO BE BORN BY THE PURCHASER WHICH IN THIS CASE WAS SCIPL. THAT WAS THE BASIC AND ONLY RE ASON FOR THE AO TO DISALLOW APPELLANT'S CLAIM. HOWEVER ON GOING THROUGH VARIOUS CLAUSES OF DIFFERENT AGREEMENTS AND APPELLANT'S EXPLANATION, IT APPEARS THAT THE AO HAS NOT PROPERLY UNDERSTOOD AND APPRECIATED THE TRANSACTION. IT IS C LEAR THAT THE TRANSACTION UNDER ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 19 CONSIDERATION IS NOT A NORMAL ONE TO ONE TRANSACTIO N OF PURCHASE AND SALE. IT IS COMPLICATED TRANSACTION IN WHICH MANY PARTIES ARE I NVOLVED HAVING DIFFERENT STAKES AND DIFFERENT PURPOSES. FOR THE SAKE OF CLARITY VAR IOUS PARTIES INVOLVED IN THE TRANSACTION LISTED AS BELOW: NAME ABBREVIATION SHYAM TELELINK LTD STLL SHYAM CELULAR INFRASTRUCTURE PRODUCTS LTD SCIPL SHYAM TELECOM LTD STL ''BHARATI TELEVENTURES LTD BTVL RAJASTHAN TELECOM LTD RTL HEXACOM INDIA LTD HIL THE CHRONOLOGY OF THE TRANSACTION UNDER CONSIDERA TION CAN BE EXPLAINED AS UNDER: I).STLL & SCIPL HAD ACQUIRED 4,92,80,000 (27.5%) AN D 5,37,60,000 (30%) SHARES OF RS 10 EACH OF MIL LTD IN THE PRECEDING YEAR. THE IN VESTMENT OF RS 102.08 CR IS SHOWN AS OPENING BALANCE IN THE BALANCE SHEET OF ST LL. DURING THE YEAR STLL & SCIPL DECIDED TO SELL THESE SHARES. THE COMPANY BTV L AGREED TO ACQUIRE THESE SHARES FROM STLL AND SCIPL. II) STLL IS WHOLLY OWNED SUBSIDIARY OF STL. AS ABOUT SCIPL, 51% OF ITS HOLDING WAS WITH RTL AND REMAINING 49% WITH STL, WHICH IT HAD A CQUIRED FROM A COMPANY CALLED TELESYSTEM (MAURITIUS) PVT LTD. BY A SEPARAT E AGREEMENT OF EVEN DATE. III) FOR THE PURPOSE OF SALE OF SHARES OF MIL, A N AGREEMENT CALLED ACQUISITION AND SHARE SWAP AGREEMENT WAS MADE ON 5/4/04 WHICH WAS SIGNED BY BTVL AS BUYERS, STLL & SCIPL AS SELLERS AND STL AND RTL AS CONFIRMING PARTIES. THIS ELABORATE AGREEMENT RUNNING INTO ABOUT 40 PAGES WAS MADE ACCO RDING TO WHICH CONSIDERATION OF 366.30 CRORES WAS FIXED FOR THE SHARES (COMBINED LOT OWNED BY STLL & SCIPL) TO BE TRANSFERRED BY SELLERS TO BUYERS. THE CONSIDERAT ION WAS NOT TO BE PAID IN CASH BUT PARTLY IN THE FORM OF SHARES OF BTVL & PARTLY OCRDS (OPTIONALLY CONVERTIBLE REDEEMABLE DEBENTURES), THE TRANSACTION WAS CALLED SWAP AND NOT OUT RIGHT SELL. IV) STL ALSO HAD OF ITS OWN, 10% STAKE IN THE SH ARES OF MIL. A SEPARATE BUT SIMILAR SWAP AGREEMENT WAS MADE FOR SELLING 10% SHARES OF M IL BY STL TO BTVL. V) SUBSEQUENT TO THE SWAP AGREEMENT DTD 5/4/04 SEPARATE SUPPLEMENTAL AGREEMENT WAS MADE ON 12/4/04 AMONGST BUYER AND SEL LERS. AS PER THAT AGREEMENT, THE AGGREGATE CONSIDERATION OF RS 366.30 CR WAS TO BE PAID ONLY IN THE FORM OF OCRDS & NOT MIX OF SHARES & OCRDS AS EARLIER DECIDE D. EVEN STL MADE, A SEPARATE SUPPLEMENTAL AGREEMENT FOR ITS 10% STAKE IN MIL. AS PER THAT SUPPLEMENTAL AGREEMENT STL WAS TO RECEIVE OCRDS WORTH RS 8.70 CR AND RS 55 CRORES IN CASH WHICH WAS DECIDED TO BE PAID TO TELESYSTEMS (MAURIT IUS) LTD FROM WHOM STL HAD ACQUIRED 49% STAKE IN SCIPL. ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 20 VI) IN VIEW OF THESE TWO AGREEMENT READ TOGETHER , THE BUYER IE BTVL WAS TO ISSUE OCRDS RS 375 CRORES IN LIEU OF THE SHARES OF MIL AC QUIRED BY IT FROM STLL, SCIPL & STL. THESE PARTIES WERE ENTITLED TO RECEIVE OCRDS A CCORDING TO THE AGREEMENTS IN LIEU OF SHARES SOLD BY THEM, NAMELY RS 8.703 CRORES TO STL, 191.961 CRORES TO SCIPL & RS 175.185 CRORES TO STLL. AS PER THE AGREEMENT, OCRDS WORTH RS 1.50 CR OUT OF SCIPL'S SHARE WERE TO BE TRANSFERRED TO ONE J SAGAR & ASSOCIATES, THE TRUSTEES TO THE AGREEMENT IN ORDER TO MEET CONTINGENT LIABILITIES, IF ANY, TILL THE CONCLUSION OF TRANSACTION. VII) THE APPELLANT COMPANY IE STLL WAS ENTITLED T O RECEIVED OCRDS WORTH RS 175.18 CRORES. ACCORDINGLY CAPITAL GAINS OF RS 73.1 0 CR (175.18 CR - 102.15 CR) AROSE ON THAT TRANSACTION. VIII) AS PER TERMS AND CONDITIONS OF OCRDS, THEY CO ULD NOT BE CONVERTED OR TRANSFERRED FOR A PERIOD OF 364 DAYS FROM THE DATE OF ISSUE. THEREFORE EFFECTIVELY IT WAS A NON-LIQUID CONSIDERATION WHICH THE SELLERS RECEIVED IN LIEU OF SHARES OF MIL WHICH THEY SOLD. IX). THE APPELLANT COMPANY WAS HAVING SUBSTANTIAL B ORROWED FUNDS (350 CRORES FROM VARIOUS FINANCIAL INSTITUTIONS) AND WANTED TO LIQUIDATE A PART OF IT TO SAVE ON INTEREST COST. THEREFORE IT DID NOT WANT TO HOLD OC RDS FOR ONE YEAR AND BLOCK THE FUNDS. THE OTHER PARTIES WHO RECEIVED OCRDS NAMELY SCIPL & STL ALSO WANTED TO HAVE READY FUNDS IN LIEU OF OCRDS. X) THE OCRDS WERE NOT TRANSFERABLE ONCE THEY WOULD BE ISSUED BY BTVL. THEREFORE AN ARRANGEMENT WAS MADE BETWEEN STL, STLL , RTL & SCIPL TO PROVIDE LIQUIDITY TO THE PROSPECTIVE OWNERS OF OCRDS OF BVT L EVEN BEFORE THEY WERE ACTUALLY ISSUED. SINCE THE SATE AGREEMENT FOR SHARES WAS ALREADY MADE, STLL, SCIPL & STL HAD RIGHT TO RECEIVE OCRDS IN PROPORTIO N TO THEIR RESPECTIVE SHARES. XI) THIS TITLE TO RECEIVE OCRDS (WHICH ITSELF IS A CAPITAL ASSET BEING RIGHT IN A PROPERTY} WAS TRANSFERRED BY STL & STLL TO SCIPL WITH A VIEW TO HAVE LIQUIDITY. ACCORDINGLY SCIPL BECAME OWNER OF ENTIRE LOT OF OCR DS WORTH RS 375 CRORES (INCLUDING OCRDS WORTH RS 1.50 CR WITH TRUSTEES) BY VIRTUE OF THE AGREEMENT DTD 14/05/04. XII) SINCE THE OCRDS ONCE ISSUED WOULD BE NON TRA NSFERABLE AND NON CONVERTIBLE FOR A YEAR, IT WAS A NON LIQUID ASSET AND HENCE IT WAS TO BE SOLD AT A DISCOUNT AS PER NORMAL MARKET PRACTICE. RTL (BEING HOLDING COMPANY OF SCIPL) ARRANGED SOME INVESTOR WHO AGREED TO PROVIDE THE NECESSARY FUNDS FOR A PERIOD OF ONE YEAR AGAINST THE OCRDS. THE DISCOUNTING CHARGES FOR THIS PURPOSE WORKED OUT TO RS 21.844 CRORES. THE TOTAL DISCOUNTING CHARGES WERE AGREED T O BE PAID BY THE THREE COMPANIES IN PROPORTION OF THEIR SHARE OF OCRDS. XIII) SINCE THE COMPANIES WERE SISTER CONCERNS, COM MON TRANSACTION FOR WHOLE LOT OF OCRDS WAS DONE INSTEAD OF SEPARATE AGREEMENTS. THE AMOUNT OF RS 351.656 CRORES, NET OF DISCOUNTING CHARGES, ARRANGED BY RTL WAS TRA NSFERRED AS LOAN TO STLL. THE ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 21 SAID AMOUNT WAS FURTHER DISTRIBUTED BY STLL AS LOAN TO STL (RS 8.194 CR) & SCIPL (RS 178.52CR). THE BALANCE AMOUNT OF RS 164.942 CR WAS RETAINED BY STLL AS NET AMOUNT RECEIVABLE AGAINST THE OCRDS. XIV) SUBSEQUENTLY BY ANOTHER AGREEMENT DATED 15/9/0 4 SIGNED BY ALL FOUR PARTIES NAMELY STL, STLL, RTL AND SCIPL THE FINANCE (RS 373 .50 CR) ARRANGED EQUAL TO THE FACE VALUE OF OCRDS AND THE DISCOUNTING CHARGES (RS 21.844 CR) WERE FORMALLY SPLIT PROPORTIONATELY IN THREE PARTS. THEREFORE THE TOTAL DISCOUNTING CHARGES OF RS 21.844 CRORES WERE DIVIDED AMONGST STL (RS 0.508 CR), SCIP L (RS 11.086 CR) & STLL (10.242 CR) ACCORDING TO THE RESPECTIVE HOLDING OF OCRDS. XV) MORE OVER ADJUSTMENT ACCOUNTING ENTRIES WERE PASSED TO SHOW THE CORRECT INDIVIDUAL POSITION. ACCORDINGLY THE LOAN FROM RTL WAS SHOWN IN THE BOOKS OF SCIPL AS STLL SET OFF THE LOAN RECEIVED & LOAN GIVEN ENTR IES. THE AMOUNT OF RS 164.942 RETAINED BY STLL WAS SET OFF AGAINST THE SALE PRICE OF OCRDS WHICH WERE TRANSFERRED TO SCIPL. XVI) SINCE ENTIRE LOT OF OCRDS WAS RETAINED BY SCIP L, EFFECTIVELY THE ENTIRE AMOUNT ARRANGED BY RTL REMAINED LOAN WITH IT OUT OF WHICH NET AMOUNT OF RS 164.492 & RS 8.194 WAS RESPECTIVELY PAID TO STLL & STL AS SALE P ROCEED (DISCOUNTED PRICE) OF THEIR SHARE OF OCRDS. THAT LOAN FROM RTL WAS TO BE SETTLED OUT OF SALE PROCEEDS OF OCRDS AFTER THEIR MATURITY. FROM THE ABOVE IT MAY BE SEEN THAT THE TRANSACTION OF SALE OF SHARES IN HIL WAS DONE AS PER AGREEMENT DATED 5/4/04 AND THE SALE CONSIDER ATION WAS TITLE TO RECEIVE OCRDS WORTH RS 175.18 CRORES WHICH RESULTED IN STCG OF RS 73.10 CR. THIS ASSET N AMELY THE TITLE TO RECEIVE OCRDS WORTH RS 175.18 CRORES WAS AGREED TO BE SOLD TO SCI PL FOR A SUM OF RS 164.94 CRORES NET OF DISCOUNTING CHARGES OF 10.24 CRORES. THE TRANSACTION OF SALE OF TITLE OF OCRDS WAS DONE AS PER AGREEMENT DATED 14/5/04 AS IS CLEAR FROM CLAUSE (A) OF AGREEMENT DTD 15/09/04 ANALYSED BY TH E AO. THE APPELLANT HAD AGREED TO PAY DISCOUNTING CHARGES IN ORDER TO GENERATE LIQ UIDITY WHICH IN ACCORDANCE WITH THE MARKET PRACTICE. IN OTHER WORDS THE COMPANY INC URRED COST FOR HAVING THE FUNDS IMMEDIATELY RATHER THAN AFTER ONE YEAR. IN FACT IF WE LOOK IT THIS FROM DIFFERENT ANGLE THE CASH RECEIVED BY THE APPELLANT IMMEDIATELY WAS USED TO REPAY SOME OF THE BORROWED FUNDS AND ACCORDINGLY INTEREST COST WAS RE DUCED. IT WAS STATED BY THE AR THAT INTEREST COST REDUCED FROM 50 CR IN LAST YEAR TO 42 CR IN THIS YEAR. IN SUBSEQUENT YEAR THE INTEREST COST WAS SUBSTANTIALLY LESS. THER EFORE EFFECTIVELY THE APPELLANT HAS NOT INCURRED ANY NET EXPENDITURE OR LOSS BUT HAVE S AVED INTEREST EXPENSES. IT WAS ONLY THE NOMENCLATURE AND THE RELEVANT ACCOUNTING E NTRIES/LEGAL CLAIMS WHICH WERE DIFFERENT FOR INTEREST AND DISCOUNTING CHARGES. THE AGREEMENT DATED 15/9/04 WAS MERELY TO REITERATE AND FOR PASSING RELEVANT ACCOUN TING ENTRIES SO AS TO MAKE THE CIRCUITOUS TRANSACTION AS DIRECT BETWEEN THE PARTIE S. THE LIABILITY TO PAY DISCOUNTING CHARGE IN SALE OF TITLE TO OCRDS WAS ALSO INCURRED AT THE TIME OF AGREEMENT FOR SELL ING THE OCRDS TO SCIPL ON 14/5/04 ITSELF. THE AO HAS RE FERRED TO AND INTERPRETED ONLY THE AGREEMENT DATED 15/9/04 WHICH IS NOT RELEVANT F OR THE ISSUE. SINCE THE APPELLANT COMPANY HAD RECEIVED CASH OF RS 164.94 CRORES ON TR ANSFER OF TITLE ON OCRDS, THE FACE VALUE OF WHICH WAS RS 175.18 CRORES, THE DIFFE RENCE WAS SHORT TERM CAPITAL LOSS ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 22 ON THE SAID TRANSACTION WHICH HAS TO BE SET OFF AGA INST CAPITAL GAIN ARISING FROM THE TRANSACTION OF SALE SHARE OF MIL. I ALSO AGREE WITH THE AR THAT EVEN IF THE WHOLE ARRANGEMENT IS SEEN AS THE SINGLE TRANSACTION THAN THE RESULT WOULD BE SAME BECAUSE THE APPELLANT RECEIVED CASH OF RS 164.94 CRORES FOR SALE OF SHARES IN MIL MAY BE THROUGH THE ROUTE OF TITLE OF OCRDS WHICH WAS TRANS FERRED BEFORE THEY WERE ISSUED. THEREFORE THE DISALLOWANCE OF DISCOUNTING OF CHARGE S OF RS 10.24 CRORES WAS NOT JUSTIFIED AND HENCE DELETED. 14. THE CIT(A) HAS DONE GOOD REASONED ORDER WHICH D OES NOT REQUIRE ANY INTERFERENCE. THE FINDINGS REACHED BY THE LD. CIT(A ), AS REPRODUCED ABOVE, STOOD NOT PROPERLY REBUTTED ON BEHALF OF THE REVENU E. THEREFORE, THIS GROUND OF APPEAL DESERVES TO BE DISMISSED. 15. IN RESPECT OF GROUND NO. 4 FOR DELETION OF RS.1 8,25,933/-, WE FIND THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION MAD E BY THE ASSESSING OFFICER. AS PER ANNEXURE-II OF TAX AUDIT REPORT, WE NOTICE T HAT THE TAX AUDITOR HAS RIGHTLY POINTED OUT THAT NO DISALLOWANCE IS TO BE M ADE FOR THE DEPOSITS MADE DELAYED BY FIVE DAYS IN THE CASE OF FLUID AIR (INDI A) LTD. VS. DCIT, 63 ITD 182, WHEREIN, IT HAS BEEN HELD AS UNDER : SEC. 43B OF THE ACT, 1961, WAS INSERTED BY THE FINA NCE ACT, 1983 W.E.F. 1ST APRIL, 1984 TO CURB THE PRACTICE RESORTED BY MANY T AXPAYERS WITHOUT DISCHARGING THEIR STATUTORY LIABILITIES SUCH AS EXC ISE DUTY, CONTRIBUTION TO PROVIDENT FUND, E.S.I. ETC., ETC. FOR LONG PERIOD B UT AT THE SAME TIME CLAIMING SUCH LIABILITIES AS DEDUCTIONS IN THEIR IN COME-TAX ASSESSMENTS ON THE GROUND THAT THEY MAINTAINED ACCOUNTS ON MERCANT ILE OR ACCRUAL BASIS. AT THE SAME TIME, THE LIABILITIES WERE DISPUTED AND THEY DID NOT DISCHARGE THE LIABILITIES. SEC. 43B OF THE ACT WAS INSERTED T O PROVIDE THAT DEDUCTION FOR ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX O R DUTY UNDER ANY LAW OR ANY SUM PAYABLE BY THE ASSESSEE AS EMPLOYER BY W AY OF CONTRIBUTION TO ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 23 ANY PROVIDENT FUND OR SUPERANNUATION FUND OR GRATUI TY FUND ETC. SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF T HE YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY THE ASSESSEE. FURTHER, THE FINANCE ACT, 1987, INSERTED TWO PROVISOS BEFORE THE EXPLANATION TO THE SECTION W.E.F. 1ST APRIL, 1988 TO THE EFFECT THAT THE SECOND PROVISO DEALT WI TH LIABILITIES FALLING UNDER CL. (B) OF S. 43B OF THE ACT TO THE EFFECT TH AT NO DEDUCTION WILL BE ALLOWED IN THE ASSESSMENT OF THE EMPLOYERS UNLESS S UCH CONTRIBUTION IS PAID TO THE FUND ON OR BEFORE THE 'DUE DATE'. DUE D ATE MEANS THE DATE BY WHICH AN EMPLOYER IS REQUIRED TO CREDIT THE CONTRIB UTION TO THE EMPLOYEES' ACCOUNT IN THE RELEVANT FUND UNDER THE PROVISIONS O F ANY LAW OR TERMS OF CONTRACT OF SERVICE OR OTHERWISE. AS THE ASSESSEE HAS DEPOSITED THE AMOUNTS WITHIN TH E PERIOD RELEVANT TO THE ASST. YR. 1992-93 SO, IF THE ASSESSEE'S CLAIM I S NOT ALLOWED IN THIS YEAR THEN IT WILL NOT GET ANY DEDUCTION IN ANY OF THE SU BSEQUENT YEARS. THEREFORE, IF A STRICT INTERPRETATION OF SS. 43B AND 2(24)(X) R/W S. 36(1)(VA) IS TAKEN THEN IT WILL CERTAINLY LEAD TO I NJUSTICE AND ABSURD RESULT WHICH WAS NEVER THE INTENTION OF THE LEGISLATURE. TH EREFORE, ON THE BASIS OF EQUITABLE CONSTRUCTION, THE CONSTRUCTION RESULTS IN EQUITY AND JUSTICE, RATHER THAN INJUSTICE AND ABSURDITY THEN SUCH CONST RUCTION SHOULD BE PREFERRED TO THE STRICT LITERAL CONSTRUCTION. HENCE , THE PROVISIONS OF S. 43B, S. 2(24)(X) R/W S. 36(1)(VA), SO FAR AS THEY ARE CO NCERNED WITH THE TIME FOR MAKING PAYMENT, SHOULD BE INTERPRETED LIBERALLY KEE PING IN VIEW PRINCIPLE OF EQUITY AND LEGISLATIVE INTENT BEHIND ENACTING SU CH PROHIBITORY PROVISIONS SO THAT THE INJUSTICE AND THE ABSURDITY CAN BE AVOIDED. READING TOGETHER SS. 36 AND 38 IT COULD BE SAID THA T THERE IS CERTAIN AMOUNT OF AMBIGUITY OVER THE EXPRESSION '15 DAYS FR OM THE CLOSE OF THE MONTH'. IN THE CASE OF AMBIGUITY THE BENEFIT SHOULD BE GIVEN TO THE ASSESSEE. VIEWED IN THIS CONTEXT MOST OF THE PAYMEN TS HAVING BEEN MADE WITHIN 9 TO 22 DAYS FROM THE DATE OF PAYMENT OF SAL ARY AND WAGES WILL BE DEEMED TO HAVE BEEN MADE WITHIN DUE DATE AND, THERE FORE, NO DISALLOWANCE COULD BE MADE ON THIS ACCOUNT. EVEN AS SUMING THAT THE DUE DATE FOR THE PAYMENT OF THE CONTRIBUTIONS FELL WITH IN A PERIOD OF 15 DAYS FROM THE END OF THE MONTH FOR WHICH SALARIES WERE P AYABLE SINCE ALL THE PAYMENTS HAVE BEEN MADE IN THE YEAR ITSELF THOUGH W ITH A MARGINAL DELAY OR A FEW DAYS ON CERTAIN OCCASIONS NO PART OF THE C ONTRIBUTIONS RECEIVED BY THE ASSESSEE FROM ITS EMPLOYEES TOWARDS PF AND ESI CAN BE DISALLOWED, SO AS TO CONSIDER THE SAME AS ASSESSEE'S INCOME UNDER S. 2(24)(X) R/W S. 36(1)(VA). ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 24 THUS, THE DELAY IN DEPOSITING THE AMOUNTS IN QUESTIO N BEING UNDER A BONA FIDE BELIEF AND FOR WANT OF FUNDS CAN BE SAID TO BE DUE TO REASONABLE CAUSE AND, THEREFORE, THERE WAS NO JUSTIFICATION IN DISAL LOWING THE ASSESSEE'S CLAIM FOR PAYMENTS OF CONTRIBUTIONS TOWARDS, EPF, E FPF, ADMINISTRATIVE CHARGES, INSURANCE FUND AND ESIS BY INVOKING THE PR OVISIONS OF S. 43B AND IN MAKING ADDITION OF CONTRIBUTION ON ACCOUNT OF EM PLOYEE'S CONTRIBUTION TOWARDS EPF, EFPF BY TREATING THE SAME AS ASSESSEE' S DEEMED INCOME UNDER S. 2(24)(X) BECAUSE THE SAME SHOULD HAVE BEEN ALLOWED AS A DEDUCTION UNDER S. 36(1)(VA) OF THE ACT K.P VARGHESE VS. ITO (1981) 131 ITR 597/7 TAXMAN 14J APPLIED . FROM THE TABLE IN RESPECT OF PF DEPOSITS AS NOTED A BOVE, IT IS SEEN THAT THE ASSESSEE HAS DEPOSITED THE AMOUNT DELAYED BY 1 TO 4 DAYS. THEREFORE, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION. ACCORDINGL Y, THE APPEAL OF THE REVENUE DESERVES TO BE PARTLY ALLOWED. 16. ADVERTING TO THE APPEALS OF ASSESSEE FOR A.YRS. 2007-08 AND 2008-09, WE FIND THAT THE FIRST ISSUE INVOLVED IN BOTH THESE AP PEALS IS WITH RESPECT TO TREATMENT OF UNUSED TALK TIME SOLD BY THE ASSESSEE IN RESPECT OF PREPAID RECHARGE VOUCHERS, AS INCOME OF THE ASSESSEE. IT IS NOTABLE THAT THE LD. CIT(A) IN SIMILAR CIRCUMSTANCES, HAS NOT TREATED THE UNUSE D TALK TIME SOLD BY THE ASSESSEE AS INCOME VIDE ORDER DATED 26.06.2009 FOR A.Y. 2005-06, WHICH WE HAVE CONFIRMED WHILE DECIDING THE APPEAL OF THE REV ENUE FOR THAT YEAR. THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF T HE CASE, WE, THEREFORE, ALLOW GROUND NO. 1 RAISED BY THE ASSESSEE IN BOTH T HESE APPEALS. ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 25 17. GROUND NO. 2 IN BOTH THE APPEALS RELATE TO ADDI TION OF PENAL INTEREST. IN THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER O BSERVED THAT THE ASSESSEE HAS PAID PENAL INTEREST OF RS.33,50,000/- AND RS.52 ,10,699/- RESPECTIVELY IN A.Y. 2007-08 AND 2008-09. THE ASSESSING OFFICER DIS ALLOWED IT TREATING THE SAME IN THE NATURE OF PENALTY IMPOSED FOR NON-PAYME NT OF DUES TO THE FINANCIAL INSTITUTIONS IN TIME. HE, THEREFORE, HELD THAT IT WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND DISALLOWED THE SAME U/S. 37(1) OF THE IT ACT. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 18. THE LEARNED AR BY WAY OF WRITTEN SYNOPSIS SUBMI TTED AS UNDER : IT IS HUMBLY SUBMITTED THAT THE INTEREST PAYMENT I S NOT ON ACCOUNT OF ANY VIOLATION/ INFRACTION OF ANY STATUTORY LAW BUT ONLY PURSUANT T O BREACH OF CONTRACTUAL TERMS (VIZ. DELAY IN PAYMENT OF PRINCIPAL/ INTEREST ON CONTRACT UAL DUE DATE) WITH THE FINANCIAL INSTITUTION. THIS IS NOT DISALLOWABLE UNDER EXPLANA TION TO SECTION 37(1). SIMILAR ISSUE WAS THERE AY 2005-06 AND THE LD. CIT(A) HAD GIVEN R ELIEF. THE DEPARTMENT HAD NOT FILED AN APPEAL ON THIS ISSUE IMPLYING THAT EVE N THE DEPARTMENT IS CONVINCED OF THE MERITS OF APPELLANT'S CONTENTION. THE RELEVANT EXTRACT FROM THE ORDER OF LD. CIT(A) F OR AY 2005-06 IS REPRODUCED FOR YOUR KIND REFERENCE (REFER PAGE 33 AND 34 OF THE PA PER BOOK): 'I HAVE CAREFULLY CONSIDERED SUBMISSIONS MADE ON BEHA LF OF APPELLANT. I HAVE SEEN THE APPEAL ORDER DATED 31/10/08 IN APPEAL NO. 157/06-07 FOR AY 05-06. DISALLOWANCE OF PENAL INTEREST OF SIMILAR NATURE IN THAT YEAR WAS D ELETED FOR THE REASON THAT IT WAS NOT IN THE NATURE OF PENALTY FOR BREACH OF LAW OR PROHIBI TED OFFENCE. THE INTEREST WAS PAID AS PER TERMS AND CONDITIONS OF AGREEMENT BY WHICH L OAN WAS GRANTED. THE FACTS IN THIS YEAR ARE ALSO SIMILAR. THEREFORE, FOLLOWING THE SAI D DECISION IN AY 04-05 THE DISALLOWANCE MADE BY THE AC) IS DELETED. ' ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 26 SIMILARLY, THE LD. CIT(A) FOR AY 2006-07 HAD DELETE D ADDITION OF PENAL INTEREST (REFER PAGE 43 AND 44 OF THE PAPER BOOK). REFERENCE IS ALSO DRAWN TO THE DECISIONS IN THE CAS ES OF GUJARAT STATE FINANCIAL CORPORATION 216 TAXMAN 183 AND KDL BIOTECH LTD. (COPIES PLACED AS SI. NO. 3 AND 4 OF CASE LAW COMPILATION). 19. THE LD. DR RELIED ON THE ORDER OF LOWER AUTHORI TIES. 20. AFTER HEARING BOTH THE SIDES AND PERUSING THE M ATERIALS AVAILABLE ON RECORD AND THE CASE LAWS RELIED BY THE ASSESSEE, WE FIND THAT THE LD. CIT(A) IN ASSESSMENT YEAR 2005-06 HAD ALLOWED SIMILAR EXPENDI TURE AS BUSINESS EXPENDITURE IN THE IDENTICAL FACTS AND CIRCUMSTANCE S OF THE CASE, WHICH WAS NOT CHALLENGED BY THE DEPARTMENT IN ITS APPEAL FOR THAT YEAR. WE FURTHER OBSERVE THAT IN THE DECISION RELIED BY THE ASSESSEE IN THE CASE OF GUJRAT STATE FINANCIAL CORPORATION 216 TAXMAN 183, HONBLE GUJRA T HIGH COURT HELD AS UNDER : 2. SHORT ISSUE IS WHETHER THE REVENUE IS RIGHT IN C ONTENDING THAT THE SUM OF RS.51.14 LAKHS (ROUNDED OFF) PAID BY THE RESPONDENT ASSESSEE BY WAY OF INTEREST ON DELAYED PAYMENT OF INSTALMENTS CAN BE TREATED TO BE IN THE NATURE OF PENALTY AND THEREFORE NOT LEVIABLE BY WAY OF DEDUCTION UNDE R SECTION 37(1) OF THE ACT. ADMITTED FACTS ARE THAT THE RESPONDENT ASSESSEE HAD PAID THE SAID SUM OF RS.51.14 LAKHS TO THE GOVERNMENT OF GUJARAT ON LOAN S AND ADVANCES MADE TO THE RESPONDENT ASSESSEE TOWARDS INTEREST ON DELAYED PAY MENT OF INSTALMENTS. THE RESPONDENT ASSESSEE ITSELF IS A PUBLIC SECTOR UNDER TAKING. HAVING TAKEN LOAN FROM THE GOVERNMENT IT ALSO AGREED TO A REPAYMENT S CHEDULE. THE TERMS OF AGREEMENT PROVIDED THAT DELAYED PAYMENT WOULD INCUR INTEREST AT THE RATE OF 2% PER MONTH. WHEN THE ASSESSEE EXPENDED THE SUM OF RS.15.14 LAKHS TOWARDS SUCH LIABILITY AND CLAIMED DEDUCTION THEREOF UNDER SECTION 57(1) OF THE ACT, THE REVENUE CONTESTED THE CLAIM ON THE TERMS THAT SUCH INTEREST IS PENAL IN NATURE AND THE SAME CANNOT BE PERMITTED DEDUCTION OF. ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 27 3. CIT (APPEALS) HELD IN FAVOUR OF THE REVENUE. THER EUPON, THE ASSESSEE APPROACHED THE TRIBUNAL. -THE TRIBUNAL REVERSED T HE DECISION OF CIT (APPEALS) MAKING FOLLOWING OBSERVATIONS:- '16. WE HAVE CONSIDERED RIVAL SUBMISSIONS. WE FIND THAT A PERUSAL OF THE RESOLUTION NO.JNV-1099-2023-A OF THE GOVT. OF GUJAR AT (SUPRA) MAKES IT CLEAR THAT THE GOVT. OF GUJARAT HAS PRESCRIBED RATE S OF INTEREST ON LOANS FOR THE PUBLIC SECTOR UNDERTAKING, WHICH IS CLEARLY IN THE NATURE OF 'PENAL INTEREST' AND NOT IN THE NATURE OF PENALTY. THE ASS ESSEE IS IN THE BUSINESS OF FINANCE AND INTEREST WAS PAID BY THE ASSESSEE-CO MPANY ON ACCOUNT OF LATE PAYMENT OF AMOUNT PAYABLE TO THE STATE GOVERNM ENT. THERE IS NO INFRINGEMENT OF LAW AND THERE IS NO ACT ON THE PART OF THE ASSESSEE WHICH CAN BE SAID TO BE AGAINST THE PUBLIC POLICY. THE AS SESSEE HAD ADVANCED FINANCE BY WAY OF TERM LOANS, LEAVE FINANCE ETC. FO R THE INDUSTRIAL UNITS IN THE STATE OF GUJARAT DURING THE RELEVANT PERIOD AND HAS EARNED INTEREST THEREON. THE PENAL INTEREST IN THE NATURE OF FINANC E CHARGES FOR LATE PAYMENT OF INSTALMENT/AMOUNT COULD NOT BE EQUATED W ITH PENALTY IMPOSABLE DUE TO SOME INFRINGEMENT OF LAW. THE USE OF THE WORD 'PENAL INTEREST' AS A NOMENCLATURE DOES NOT MEAN ANY PENAL TY FOR INFRINGEMENT OF LAW. WE FIND THAT THE OBSERVATIONS OF THE CIT(A) THAT SUCH LATE PAYMENT IS AGAINST THE PUBLIC POLICY AND AMOUNT PAI D BY THE SAME COULD NOT BE ALLOWED AS DEDUCTIBLE EXPENSES UNDER SECTION 37(1 A) IN VIEW OF EXPLANATION TO SECTION 37(1), IS NOT SUSTAINABLE IN LAW. THE INTEREST CHARGED AT THE RATE OF 2% . PER MONTH FOR DELAYED P AYMENT OF INSTALMENT BY THE ASSESSEE-COMPANY COULD NOT BE EQUATED WITH P AYMENT MADE AGAINST THE PUBLIC POLICY OR PAYMENT MADE IN CONTRA VENTION OF LAW. WE ARE OF THE CONSIDERED VIEW THAT THE INTEREST PAID B Y THE ASSESSEE ON DELAYED PAYMENT OF INSTALMENT TO THE STATE OF GUJAR AT IS IN THE NATURE OF FINANCIAL CHARGED FOR LATE PAYMENT OF INSTALMENT. I N VIEW-OF THE MATTER, WE HOLD THAT NO CASE OF DISALLOWANCE BY HOLDING THE PAYMENT OF .PENAL . INTEREST AS AGAINST THE PUBLIC POLICY COULD BE MADE OUT BY THE DEPARTMENT, AND ACCORDINGLY, THE ISSUE IS DECIDED I N FAVOUR OF THE ASSESSEE AND THE GROUNDS OF THE APPEAL OF THE ASSES SEE ARE ALLOWED.' 4. FROM THE DECISION OF THE TRIBUNAL AND OTHER DOCU MENTS ON RECORD, IT EMERGES THAT THE PAYMENT IN QUESTION CONCERNED INTEREST FOR DELAYED PAYMENT OF INSTALMENTS. THOUGH THE AGREEMENT REFERRED TO AS PE NAL INTEREST, THE SAME WAS RIGHTLY NOT TREATED BY THE TRIBUNAL AS PENALTY. MER ELY BECAUSE THE AGREEMENT REFERRED TO SUCH INTEREST AS A PENAL INTEREST, ANY SUCH PAYMENT WOULD NOT PARTAKE THE CHARACTER OF PENALTY. IT IS NOT EVEN TH E CASE OF THE REVENUE THAT THE SUM EXPENDED BY THE ASSESSEE WAS FOR PAYMENT OF PEN ALTY. IT WAS SIMPLICITER LIABILITY OF INTEREST ON DELAYED PAYMENT OF INSTALM ENTS. ITA NOS. 3831/DEL/09, 2624/DEL/11 & 2991/DEL/12 28 SIMILARLY, IN THE CASE OF KDL BIOTECH LTD. VS. ACIT , IN ITA NO. 1695/MUM/2009 (ORDER PLACED ON RECORD), IT HAS BEEN HELD AS UNDER : 6. ON A CAREFUL CONSIDERATION OF THIS ISSUE, WE FI ND THAT THE ADDITIONAL INTEREST PAID TO BANK IS TERMED AS PENAL INTEREST A ND THIS IS LEVIED IN TERMS OF AN AGREEMENT BETWEEN THE BANK AND THE ASSESSEE. IT IS NOT THE CASE OF INFRINGEMENT OF LAW. THE A.O. HAS NOT GIVEN ANY REAS ON FOR THE DISALLOWANCE. THE FIRST APPELLATE AUTHORITY HAS WRON GLY HELD THAT THIS IS A PENALTY IMPOSED FOR A BREACH OF LAW. THUS WE ARE UN ABLE TO UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY. WE DELETE T HE DISALLOWANCE AND ALLOW THE APPEAL OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE DELE TE THESE ADDITIONS. ACCORDINGLY, BOTH THE APPEALS OF THE ASSESSEE ARE A LLOWED. 21. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED AND BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY, 2018. SD/- SD/- (H.S. SIDHU) (L.P. SAH U) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22 ND FEBRUARY, 2018 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI